The economic shock waves of the Wuhan coronavirus look likely to eclipse the 2003 SARS crisis, as shares in China fell dramatically and analysts downgraded their forecasts for the country鈥檚 growth.
The Shanghai Composite Index fell by 8 per cent today, the largest daily drop for more than four years, despite China鈥檚 central bank saying yesterday it would inject $174 billion worth of liquidity into markets.
As the number of coronavirus infections in China , UK-based analysts Oxford Economics today cut its 2020 forecast for the Chinese economy from 6 per cent to 5.4 per cent. The group expects the outbreak to cut global GDP growth this year by 0.25 percentage points. By comparison, the SARS outbreak cost about 0.15 percentage points of global GDP.
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Ben May at Oxford Economics says that, although there is much uncertainty over the eventual impact of the coronavirus, it is likely to be worse than SARS because China鈥檚 share of global trade has grown since 2003 and the immediate response by Chinese authorities has been stronger. 鈥淭here鈥檚 been much more lockdowns on people and restrictions on business than with SARS,鈥� he says.
Flights stopped
While emergency flights evacuating Japanese, US and European citizens from China have dominated news bulletins in the past week, one big impact will be on demand for jet fuel. Many domestic and international flights have already stopped. The price of the global benchmark for crude oil has fallen to just below $60 a barrel, cancelling out the rises that occurred after the .
The coronavirus is likely to have a much bigger effect on aviation than the SARS outbreak because many more Chinese now take to the skies. In 2003, there were 86 million Chinese air passengers. Today, there are more than 600 million.
Consultancy group Wood Mackenzie says it expects the virus to lower global oil demand by more than 100,000 barrels a day on average in 2020. Global demand is around 102 million barrels a day. The group says it anticipates a 鈥渟evere and one-off impact to China鈥檚 demand for jet fuel鈥�.
Potentially bigger
Credit agency Fitch Ratings says that while there was potential for a bigger effect on global aviation than SARS 鈥� which saw global air passenger traffic drop almost a fifth in April 2003 鈥� the current outbreak would have to 鈥渋ncrease substantially鈥� to have a significant global impact on flying.
The key to the coronavirus鈥檚 economic impact will be whether the outbreak is short-lived. Many forecasts and analysts are assuming a recovery in economic activity from April onwards, and any economic losses up to now might be recouped later in the year. If the virus is contained, factories and businesses in China will make up for lost time with extra production and shifts, and consumer spending could still end up roughly unchanged over the year, says May.
But if the virulence of the coronavirus and its mortality rate rise, the economic picture could be bleaker. 鈥淵ou could make the view that the impact will be significantly greater if you see it continuing to spread,鈥� says May.
